Colony Capital LLC has broken off talks with struggling MGM Mirage about a potential investment that could have given the casino company cash it needs to meet its looming financial obligations.
The collapse of talks with Colony means that MGM Mirage must find other ways to service its $13.5 billion in debt, as well as fund payments on its City Center project, an $8.6 billion development on the Las Vegas Strip.
Colony, a Los Angeles-based investment firm, had been discussing a possible joint investment with Crown Ltd., the Australian gambling company controlled by James Packer. Crown has also backed away from investing in MGM Mirage for the time being. A Crown spokesman wasn't immediately available for comment.
MGM Mirage, which is controlled by investor Kirk Kerkorian, now appears to be focused on negotiating a deal with its lenders that would give it some breathing room, people familiar with the situation said.
The Las Vegas company has said it is pursuing many options, including talks with other investors. "We continue to have discussions with investors and will not address details of any specific party," said MGM Mirage spokesman Alan Feldman.
MGM Mirage is a 50-50 partner in the City Center project with Dubai World, a conglomerate owned by the Dubai government. The two must come up with a $70 million payment on the project by Monday in order to prevent construction from shutting down. However, relations between the partners have soured, and Dubai World has filed suit alleging that MGM Mirage let costs at City Center get out of control.
A spokesman for Dubai World had no comment on MGM Mirage's talks with Colony.
MGM Mirage warned investors last month that it could be in default of its loan covenants as its bills mount and revenue declines. Outside investors have been circling the gambling company as its cash needs mount.
One option presented by Colony to MGM Mirage executives was an investment of at least $750 million, secured by one or more MGM Mirage properties. That investment could then be converted into an equity stake in MGM Mirage. A large enough conversion might have wrested control of the company from Mr. Kerkorian, who owns 53.8% of the company. It also would have diluted other shareholders, including Dubai World, which owns a 9.5% stake in MGM Mirage, separate from its 50% stake in City Center.
A person close to Colony said it may re-engage with MGM Mirage at some point in the future, depending on the outcome of MGM Mirage's other negotiations.END
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